By Manya Saini
(Reuters) -PayPal on Tuesday raised its forecast for full-year adjusted profit for the second time after its branded checkout business outperformed and eased competition worries, sending its shares up 9% in morning trading.
Tech giants Apple (NASDAQ:AAPL) and Google parent Alphabet (NASDAQ:GOOGL) have expanded into digital payment offerings in recent years, causing analysts and investors to fear that they will take a bite out of PayPal (NASDAQ:PYPL)'s market share in its mainstay business.
"If we narrow down into desktop/web which is 40% to 50% of all checkout, we see no degradation in our share over the past four years. We have held share despite competition," CEO Alex Chriss said in a call with analysts, responding to a question about the increasing adoption of Apple Pay.
American consumers have also remained remarkably hardy despite feeling the pinch from higher utility and credit card bills. PayPal is betting on continued spending resilience through the key back-to-school and upcoming holiday shopping seasons.
The company now expects adjusted profit growth in a "low to mid-teens percentage" in 2024, compared with its April forecast of a "mid-to-high single-digit" increase.
Its adjusted earnings per share rose to $1.19 in the three months ended June 30, versus 87 cents a year ago.
"While a gross profit beat was expected, magnitude of the upside surprised positively," analysts at Jefferies said.
Total payment volumes increased 11%, to $416.81 billion in the second quarter, while revenue climbed 9%, to $7.89 billion on an FX-neutral basis.
TURNAROUND IN PROGRESS
Easing some investor worries that have weighed heavily on the stock, total payments volumes in branded checkout grew roughly 6% in the second quarter.
PayPal said branded checkout, Braintree, and Venmo contributed to the highest transaction margin dollars growth rate since 2021. Margin dollars are a key measure of the profitability of its core business.
Chief Financial Officer Jamie Miller said in a call with analysts that the company expects lower volume and revenue growth through the second half of the year, in line with its plan to prioritize high-quality profitable growth.
"This is deliberate and shows good progress," she said.
Transaction margin dollars jumped 8% in the quarter, to $3.61 billion, surpassing expectations of a nearly 1% gain.
"We returned the company to transaction margin growth, we returned the company to consumer user growth, we significantly improved profitability of Braintree and we are accelerating Venmo," Chriss said.
PayPal's operating margins expanded 231 basis points on an adjusted basis, to 18.5% in the quarter, thanks to cost cuts and restructuring efforts.